Inside the growing footprint of IFRS lies something many small and
midsize CPA firms may be overlooking—rich opportunities for business development.

IFRS-related work in the United States has largely been the domain
of major accounting firms thus far. While national firms are filling
many of the needs, there’s a large space that small and midsize firms
can occupy given the right positioning, knowledge and resources.

To carve out an international niche, firms must be realistic about
the challenges. Reaching critical mass as you grow your IFRS client
base will take time. Building IFRS bench strength inside your firm
will likewise take a commitment. The effort may mean an outflow of
cash for the first couple of years. Yet for small and regional firms
willing to put in the work, developing that kind of niche can
ultimately drive profit.

FILLING A VOIDMany U.S. subsidiaries of foreign-owned companies are changing
to IFRS for their reporting standards. Our firm of 100 professionals
saw this repeatedly as we visited management of our German-owned
clients in 2008. They were excited about the prospect of having common
reporting standards among parent companies and their subsidiaries
throughout the world.

Likewise, U.S.-based companies with foreign subsidiaries will also
benefit by having all entities report under one common international
accounting system, saving considerable time, effort and cost related
to managing operations and reporting consolidated results. The first
wave of transition is happening now.

With the AICPA’s recognition in 2008 of the International Accounting
Standards Board (IASB) as an accounting standards setter, the door is
open for U.S. private companies to adopt IFRS.

The SEC’s proposal to transition issuers to IFRS beginning in 2014
(see sidebar, “IFRS in the U.S.: The Road Ahead,” for more on what the
SEC has proposed) will take significant resources and manpower. Many
companies will tap external sources to bolster their staffs to make
the shift. Businesses will need expertise and/or capacity to:

Make a preliminary assessment of the impact of adopting IFRS, including
identifying areas that appear to be most sensitive to conversion.

Quantify the impact of adopting IFRS on the financial statements.

Develop a strategy, including a timeline, to properly implement the conversion.

Develop systems to properly accumulate and report financial information
in accordance with IFRS.

Determine how a move to IFRS would affect regulatory agency policies
and contractual arrangements (including debt covenants) that are
currently based on U.S. GAAP.

Sean Lager, CPA, an audit partner of the Atlanta firm Frazier
Deeter LLC, says his firm, which employs about 100 CPAs, has been
working for the past five years with companies that report under IFRS.
“Based on our experiences, there is a huge void in our marketplace of
IFRS knowledge,” Lager says. “There is already a demand in the U.S.
for IFRS knowledge (due to 100-plus jurisdictions moving to IFRS), and
once the SEC requires IFRS for U.S. issuers, there is going to be a
major opportunity for all firms to assist in the transition to IFRS.
We have already positioned ourselves to take advantage of that void.”

Case Study: The Learning CurveFor our firm, the first exposure to IFRS came in 2003 when one
of our clients, publicly traded in Germany, was moving to IFRS from
German GAAP. While we had previously taken a number of years to build
confidence in our knowledge of German GAAP, with its numerous
differences from U.S. GAAP, we felt the transition to IFRS would be
significantly easier as we generically read about the convergence
process and the few differences with U.S. GAAP. We were in for a surprise.

As we began to dig deeper into the international standards, we
identified subtleties that needed to be considered, such as inventory
valuation and deferred taxes. Our initial assessment of inventory
concluded that there would be no difference since the client did not
value its inventory under the lastin, first-out inventory valuation
method (IFRS does not permit the use of LIFO). However, the client
held some older inventory with a market value less than cost. In
accordance with U.S. GAAP, those items were valued at market. IFRS
states this inventory should be valued at the lower of cost or net
realizable value (that is, market value less selling costs). This
slight difference in wording resulted in a significant difference in
reporting value.

We had a similar experience with deferred taxes. The two standards
on income taxes, IAS 12, Income Taxes, and FASB Statement no.
109, Accounting for Income Taxes, appear to be very similar.
But as we read more closely, we found presentation issues not
initially considered. For example, the client had deferred tax assets
that were not expected to be fully recoverable. Under U.S. GAAP, the
gross amount is recorded and offset with a valuation allowance. In
accordance with IAS 12, deferred tax assets are presented at the net
probable amount to be realized, and deferred taxes are shown as long
term as opposed to U.S. GAAP’s requirement to classify based on the
nature of the related asset or liability.

ACQUIRING THE SKILLSMaking the shift to IFRS at times can feel like learning a
foreign language. Many CPAs are approaching this transition by
starting with what they know—U.S. GAAP—and attempting to identify the
differences without reading the original pronouncements. Spend the
time and energy to learn the new standards by reading the consolidated
IFRS text issued annually by the IASB and publications such as:
Interpretation and Application of International Accounting and
Financial Reporting Standards, by Barry Epstein and Eva
Jermakowicz, and/or subscribing to an electronic service such as the
Deloitte Accounting Research Tool (DART). Looking beyond the surface
and reading the pronouncements thoroughly is critical in acquiring the
needed skills because subtle differences can have a significant impact.

Outside training is invaluable, and small and midsize firms must be
willing to invest time and money in educating staff if they hope to
capture IFRS work. Sharing knowledge across the firm (and across
multiple offices for firms with more than one location) through
meetings and training helps deepen the bench. Many smaller firms also
turn to associations of firms for advice and to pull in expertise or
personnel needed to fill gaps. Our firm, for example, serves as the
concurring reviewer for IFRS for an engagement in Hawaii as a result
of our association in CPAmerica. We perform the technical/concurring
review of the financial statements that are prepared in accordance
with IFRS. We are a supplement to their bench strength. We also use
white paper development to expand IFRS expertise on our staff. At our
monthly international niche meetings, we assign a team member an area
of international standards to study and ask him or her to compose a
white paper on the topic.

For example, a team member assigned to study inventory would
research IAS 2, Inventories, by reading the summary and the
standard and writing the white paper, which is then presented to the
group and posted on our Web site. The white papers touch on the
differences between the international standard and U.S. GAAP, but only
at the close of the paper. Placing the differences on the back end
helps reinforce the necessary change in mind-set and helps take CPAs
beyond the differences. As a result of this process, our team members
develop expertise on certain sections of international standards
rather than trying to learn everything all at once.

Another tactic is for auditors in an IFRS engagement to review the
disclosure checklist as part of the audit planning. The checklist
helps auditors identify specific elements that must be addressed
during the audit process.

Some Opportunities for IFRS EducationAICPA—The AICPA held its inaugural International
Issues Conference in Washington, D.C., in 2008. The conference
highlighted international accounting issues, but also spent
significant time on international auditing issues. Conference
attendees were a variety of well-trained, highly educated
professionals who live and breathe international accounting. The 2009
conference will be held in Washington April 30–May 1.

IFRS.com—The AICPA, in partnership with CPA2Biz,
launched this site in May. The site offers IFRS overviews tailored to
accounting firms, financial managers and executives, boards, audit
committees and investors, as well as CPE self-study courses and IFRS
updates from the IASB, the SEC and FASB. A number of Wiley resource
guides are available through the site. There’s also information for
CPAs interested in volunteering on convergence projects.

Seminars—The AICPA has teamed up with IASeminars
to offer its members a comprehensive range of IFRS training solutions
worldwide. The courses range from one-day overviews to eight-day
immersion courses.

IASB—Purchase International Financial Reporting
Standards (IFRSs) 2008 from the IASB. The annual publication is
a consolidated text of the IASB’s authoritative pronouncements. It
costs £60 (about $90). A Guide through International Financial
Reporting Standards (IFRSs) 2008 contains cross-references and
other annotations. It costs £90 (about $135). Both can be ordered at
www.iasb.org.

Publications from the Big Four accounting firms highlight
the major differences between U.S. GAAP and IFRS. These resources are
free and available on their Web sites. Deloitte has comprehensive
information online about international financial reporting at www.iasplus.com. The site is free,
extensive and updated constantly. It is an excellent resource to gain
a basic understanding of IFRS.

SHIFTING BUSINESS DEVELOPMENT GEARSGrowing an IFRS niche requires adapting business development and
marketing efforts. For our firm, one successful strategy has been to
participate in local organizations that have an international focus.
Collaborating with the local government on economic development
projects aimed at recruiting foreign-owned businesses has also helped
us connect with potential clients.

Our firm sponsors the German-American Business Circle to support the
economic development infrastructure needed to attract and retain
German companies in Pittsburgh. Members of the firm’s international
group are also involved with the regional British American Business Council.

Such groups are often a source of member databases that firms can
mine for new business opportunities. Our firm regularly divides target
lists up among the international group members, who research the
financial metrics and geographic location of both the parent and
subsidiary. For small and midsize accounting firms, the best
opportunities may be with subsidiaries whose parents are not overly
large, are family owned or have a limited number of investors. We
target subsidiaries whose parent company has revenue ranging from $500
million to $5 billion, where it’s easier for the parent to envision us
as the accounting firm and for us to forge relationships with
management at both the parent and subsidiary.

Market research can also include looking at the attorneys or bankers
working with the foreign-owned companies in your region. Existing
relationships with those contacts can help open doors for small and
midsize firms.

A willingness to initially take on startup or small foreign
subsidiaries as clients can help deepen a firm’s IFRS practice. One of
our earliest foreign clients began in the 1970s as one man with a
suitcase full of product. He was charged with establishing a U.S.
company to sell items manufactured by the European parent. As with
many startup entities, our early services consisted of simple
accounting and business advice.

As the company matured and prospered, our services also evolved to
include consulting on complex merger/acquisition and tax matters.
Today, that company has blossomed into a manufacturer/distribution
company with more than $100 million in annual revenue and subsidiaries
in Mexico and Canada. Patience often pays off in growing an
international practice.

CONCLUSIONIFRS work isn’t for every firm. Nor is it only for national
firms. Small and midsize firms can have a big role to play given the
correct strategy and skill-set. Smart firms will begin now to consider
their path, acquire knowledge and adapt their business development
processes. Demand for U.S. CPAs with IFRS knowledge will only
accelerate as more businesses move from U.S. GAAP to IFRS.

EXECUTIVE SUMMARY

IFRS presents opportunities for small and midsize
firms to grow. Developing an IFRS niche means more than learning
the standards. It also requires adapting business development and
marketing efforts.

Many U.S. subsidiaries of foreign-owned companies are
changing to IFRS for their reporting standards. Likewise,
U.S.-based companies with foreign subsidiaries will also benefit by
having all entities report under one common international accounting
system. The first wave of transition is happening now. With the
AICPA’s recognition in 2008 of the International Accounting Standards
Board (IASB) as an accounting standards setter, the door is open for
U.S. private companies to adopt IFRS.

The SEC’s proposed transition of issuers to IFRS
beginning in 2014 will take a significant amount of resources and
manpower. Many companies will tap external sources to bolster their
staff to make the shift.

Collaborating with local government on economic
development projects aimed at recruiting foreign-owned businesses can
help firms connect with potential clients. Chambers and other business
alliances that bring together foreign-owned companies in the U.S. are
also good sources of business development leads.

The International Financial Reporting Standards: An Overview
, a CPE self-study course (#739750HS or #157220)

International Versus U.S. Accounting: What in the World is the Difference?
, a CPE self-study course (#731666)

Are You Ready for IFRS? Moving Beyond the Basics
, a CPE self-study course (#741600)

Publications

Interpretation and Application of International Accounting and Financial Reporting Standards 2008
(#WI135166)

IFRS: Practical Implementation Guide and Workbook
(#WI170229)

For more information or to place an order, go to www.cpa2biz.comor call the Institute at 888-777-7077.

IFRS in the U. S.: The Road AheadUnder the SEC’s proposed IFRS road map, the Commission would
decide in 2011 whether to proceed with rulemaking to require U.S.
issuers to use IFRS beginning in 2014. Limited early use of IFRS,
beginning with filings for fiscal years ending on or after Dec. 15,
2009, would be allowed where this would enhance comparability for U.S.
investors. Eligibility for early adoption would be based on both the
prevalence of the use of IFRS and the significance of the issuer in a
given industry. The SEC estimates that a minimum of 110 companies
could be eligible.

Under a staged transition, IFRS filings would begin for large
accelerated filers for fiscal years ending on or after Dec. 15, 2014,
and for remaining accelerated filers for years ending on or after Dec.
15, 2015. Nonaccelerated filers, including smaller reporting
companies, would begin IFRS filings for years ending on or after Dec.
15, 2016.

The road map spells out two alternative proposals under which U.S.
issuers that elect to use IFRS would disclose U.S. GAAP information.
Under the first alternative, Proposal A, a U.S. issuer that elects to
file IFRS financial statements would provide the reconciling
information from U.S. GAAP to IFRS called for under IFRS 1,
First-time Adoption of International Financial Reporting
Standards, in a footnote to its audited financial statements.
Under the second alternative, Proposal B, U.S. issuers that elect to
file IFRS financial statements would provide the reconciling
information from U.S. GAAP to IFRS required under IFRS 1 and would
also disclose on an annual basis certain unaudited supplemental U.S.
GAAP financial information covering a three-year period.